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Athenahealth (NASDAQ:ATHN)
Q1 2018 Earnings Conference Call
April 27, 2018 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Athenahealth first-quarter fiscal year 2018 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Dana Quattrochi, executive director of investor relations for Athenahealth. Please go ahead, Ms. Quattrochi.

Dana Quattrochi -- Executive Director of Investor Relations

Good morning and thank you for joining us. With me on the call today are Jonathan Bush, our chief executive officer, and Marc Levine, our chief financial officer. On today's call, Marc will share brief highlights from the prepared remarks we published yesterday, and then we will take questions.We would like to remind everyone that certain statements made during this conference call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact made during this conference call are forward-looking statements, including statements regarding management's expectations for future financial and operational performance and operating expenditures, including the implementation and the impact of our strategic plan and our savings; changes in our market; our plans to drive better bookings performance; our goals and strategic objectives; our position for the future; and our ability to drive profitable growth and enhance shareholder value; and statements regarding the focus of our business and the impact of actions to improve our business.Forward-looking statements may be identified with words such as "will," "may," "expect," "plan," "anticipate," "upcoming," "believe," "estimate," or similar terminology and the negative of these terms.

Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. These risks and uncertainties include those under the heading Risk Factors in our most current annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, which are available on the Investors section of our website at www.Athenahealth.com and on the SEC's website at www.sec.gov. Forward-looking statements speak only as of the date hereof, and except required by law, we undertake no obligation to update or revise these forward-looking statements.Please note that on today's call, we will refer to certain non-GAAP financial measures in which we exclude certain non-cash or non-recurring items, such as stock-based compensation, from our GAAP financial results. We believe that in order to properly understand our short-term and long-term trends, investors may wish to consider the impact of these items as a supplement to financial performance measures determined in accordance with GAAP.

Please refer to yesterday's press release announcing our first-quarter 2018 results available on our website, www.Athenahealth.com, for a reconciliation of these non-GAAP performance measures to our GAAP financial results.Finally, please note that we adopted a new revenue-recognition standard on January 1, 2018. On today's call, we will discuss our financial results both as presented, based on this new revenue recognition standard, as well as prior to the impact of the new standard to allow for comparability against historical results. Again please refer to yesterday's press release announcing our first-quarter 2018 results available on our website www.Athenahealth.com for additional information and reconciliation of our financial results between the new and previous revenue-recognition standard.With that, I'll now turn the call over to Marc Levine.

Marc Levine -- Chief Financial Officer

Thank you, Dana. Good morning, everyone, and thanks for joining us for our first-quarter earnings call. I'll start with the headlines, during the first quarter we achieved steady top-line growth that was in line with our internal plans. Total revenue as presented was $329 million.

Prior to the impact of the new revenue-recognition standard, total company revenue grew 12% to $320 million versus Q1 of last year. We also made continued progress in our efforts to improve profitability. GAAP operating income as presented was $42 million. Prior to the impact of the new revenue-recognition standard, GAAP operating income increased to $26 million, compared to $1 million in Q1 of last year, and non-GAAP operating income increased 146% year over year to $54 million during the first quarter.Additionally, we began the year with solid growth and healthcare providers on our network.

Compared to Q1 of last year, the number of providers on AthenaCollector increased 15%, and client retention was in line with our Q1 expectations. Although it remains lower than we'd like, the measures were taken to evolve our customer success model, increase account management resources, and drive higher accountability internally for the success of our clients by improving the customer experience, and we expect this to favorably impact retention in the future quarters.While our financial results and network growth were solid, new bookings came in weaker than we expected. During the first quarter, we added $52 million of bookings, including $40 million of recurring Athenahealth-branded bookings and $12 million of non-recurring Epocrates-branded bookings. This compares to total bookings of $77 million in Q1 of last year, which included $68 million of recurring bookings and $9 million of non-recurring bookings.Let me give you one more color on our Q1 bookings results.

While bookings declined overall, we did see the role of strength in our core independent medical group segment, which was about in line with our internal plans. NFI deals came in weaker than we planned. We worked fewer larger deals in Q1 and the health system largely remains highly competitive. We also fell short of our Q1 target in hospital and population health segments, where we made a conscious decision to balance the pace of growth with our product readiness to ensure we deliver the best possible customer experience for new customers.Our recent booking weakness has partially been a function of fewer opportunities in our addressable market.

As you know, the timing of bookings throughout the year could be lumpy, particularly when it comes to signing a large deal.

In the first quarter of 2017, we signed a couple of multimillion-dollar deals that made for a more challenging comparison. Despite a modest market environment, we do need to improve our execution. We plan to draw better bookings performance by expanding our market coverage, better articulating the value we provide for our customers and continuing our product roll-out plans to add new service features which improve the customer experience.

We believe that the market and the needs of our clients are evolving. Buying decisions will increasingly be based on the merits of the technology platform, the patient and provider experience, and the economic benefits of the product services. We are well-positioned to take advantage of the trend. As we discussed at our investor summit in February, we are continuing on our work to build the platform that will have a transformative impact on healthcare providers, payers, and consumers.In parallel, we are also focusing our investments on opportunities to meet today's customers' needs in the ambulatory and small-hospital markets.

Let me take a minute to highlight the progress we made in each of these areas during the first quarter. I'll start with ambulatory. Our priority here is to deepen our core services and use our network to increase the value we deliver for healthcare providers. Today, there are more than 114,000 providers on AthenaNet.

We strive to help them run their businesses more efficiently by reducing administrative waste and enabling doctors to spend more time seeing and caring for patients.During the first quarter, we made solid progress on this objective. In our first release of the year in March, we delivered new value-creating features that reduce client work, simplify workflows, and enhance the patient-provider experience. This includes key improvements related to document services, coding denials, patient payments and authorization management to name a few.We also continue to build our position as the most connected network in healthcare, with the release of real-time benefit check. This new feature gives providers access to patient-specific benefit and prescription pricing information directly in AthenaNet.

Although we just recently launched this functionality across our client base, the initial feedback from our clients has been very positive. Throughout 2018, we are committed to taking more work off clients' plates and delivering additional capabilities that deepen our ambulatory services, strengthening client retention, and drive growth across our client base.Turning now to our small-hospital service. As we've discussed, our focus in the near term is on building a scalable, sustainable, network-centric service for small hospitals. And while we've only been active in the space for a few years, we've made progress against this priority.During Q1, we added eight new hospitals and ended the quarter with 70 hospitals fully live on our network.

The activity of our network also continued to build solid momentum. Discharged bed days increased over 20% sequentially and nearly 200% compared to Q1 of last year. The early progress we've made expanding AthenaOne in the hospital gives us confidence in our ability to continue to gain share in our addressable market.Class Research recently recognized us as the No. 1-ranked acute care electronic medical record for community hospitals.

We believe this is a good indication of the improvements we've made to our hospital service and the value we're creating for clients in this key market segment. We still have more work to do to deepen our scale and our services and to improve the quality of our service.Finally, let me turn to some recent leadership transition. Earlier this week, we announced that Dave Robinson has decided to retire and will be stepping from our board of directors after our annual shareholders meeting in June. We'd like to thank Dave for his more than 10 years of dedicated services to Athenahealth as both a member of our management team and our board.

His unique perspective and guidance over the years have been incredibly valuable to our company.I'd also like to update you on a recent change in our management team. Kyle Armbrester, our chief product officer, has made the decision to leave Athenahealth to become chief executive officer of a privately held company. On behalf of Athenahealth, I want to thank Kyle for his leadership and entrepreneurial vision over the past six years. We wish him all the best in his new opportunity.I'll now review our financial results in more details.

And I'll begin with our results as presented based on the new revenue-recognition standard. During the first quarter, total revenue was $329 million, GAAP gross profit was $175 million, or 53.2% of total revenue. GAAP operating income was $42 million, or 12.8% of total revenue, and GAAP net income was $31 million, or $0.76 per diluted share. I'll now discuss our results prior to the impact of the new revenue-recognition standard to enable comparability against our historical results.

Our first-quarter revenue was $320 million, an increase of 12% year over year. Recurring revenue grew 14%, driven by a 15% year over year. Recurring revenue grew 14%, driven by a 15% year over year increase in the number of AthenaCollector providers.We believe a stronger flu season had a modest favorable impact on top-line results. As we discussed in our investor summit, we plan to drive an increased level of profitable growth this year.

We are taking advantage of more efficient sales and marketing and general and administrative cost structure in order to fund our clients' work-reduction efforts and our investments in new technology and product development. Our Q1 results reflect this investment approach.On a consolidated basis, GAAP gross margin for the first quarter was 50.6%, as compared to 49.4% in the same quarter of last year. Our non-GAAP gross margin was 53% during the first quarter, as compared to 51.5% in Q1 of last year. GAAP selling and marketing expense decreased $13 million year over year to $53 million in Q1 of 2018 due to lower compensation and commissions, as well as sales and marketing efficiencies related to our cost reduction initiatives.

Compared with the same quarter last year, GAAP research and development expenses increased $5 million year over year to $48 million during Q1, driven primarily by our investments in our core services, platform development, and network services. On a cash basis, research and development spending as a percent of revenue came in at 17% in Q1 2018, compared to 16.4% in the first quarter last year.Lastly, our GAAP general and administrative expenses in Q1 increased $4 million year over year to $35 million. This increase was driven primarily by restructuring charges related to our cost-reduction initiatives. We generated GAAP operating income of $26 million during the first quarter, reflecting continued improvement in operational execution.

This compares to $1 million during the first quarter of last year. These operating income results include approximately $5 million of pre-tax restructuring charges related to the strategic plan we announced in October of 2017.On a non-GAAP basis, first-quarter operating income increased 146% year over year to $54 million, driven by top-line growth and expense saving initiatives. Our Q1 non-GAAP operating margin improved 920 basis points year over year to 16.9%. During the first quarter, we generated GAAP net income of $19 million, or $0.47 per diluted share.

This compares to a GAAP net loss of $1 million, or loss of $0.03 per diluted share, in Q1 of the prior year. On a non-GAAP basis, we generated net income of $39 million, or $0.96 per diluted share, during the first quarter, up from $13 million, or $0.32 per diluted share, in the same period last year.We continue to seek an appropriate balance between revenue growth, operating margin, and free cash flow. During the first quarter, we generated $30 million of operating cash flow and invested $26 million in capitalized software and $16 million in capital expenditures. Our free cash flow is defined as operating cash flow less total capital purchases was a net outflow of $12 million during the first quarter.

This was an improvement of $21 million compared to a net outflow of $33 million in the first quarter last year.Turning now to our financial outlook, we are reaffirming the fiscal-year 2018 guidance we introduced at our investor summit in February. For the full year, we continue to expect revenue to be within the range of $1.310 billion to $1.380 billion, GAAP operating income to be within the range of $108 million to $152 million, and non-GAAP operating income to be within the range of $210 million to $235 million. Please keep in mind this guidance is prior to the impact of the new revenue-recognition standard to allow for comparability against our prior-year results.In summary, we began the year with solid financial results during the first quarter, with one quarter behind us, we are extremely focused on driving demand for our services, delivering our client commitments and achieving our financial goals. We remain on track with our plans to drive strong revenue and earnings growth for the full year.With that, I'll turn it back over to our conference call moderator for Q&A.

Questions and Answers:

Operator

[Operator instructions]. And our first question comes from the line of Mohan Naidu with Oppenheimer. Your line is open.

Mohan Naidu -- Oppenheimer & Company -- Analyst

Jonathan and Marc, we understand the market is weak in the ambulatory segment. Is there anything you could do to incentivize the physicians to come to the market and your product? And on the enterprise side, is it that the pipeline is smaller or the pipeline conversion is taking longer at this point?

Jonathan Bush -- Chief Executive Officer, President, and Director

Obviously, you point out the market trend, then there is execution, and then there is a product. Those are the two things that basically drive bookings. We've been talking about the sugar-low on the market trend side and we'd believe that's a real thing, and we don't believe it's a forever thing. Execution at Athena is going well on the core products.

As you know, we are continuing to focus more energy on markets and products where we can execute well and get products to more maturity before assigning bookings and rolling them out.On the product front, I think you've heard, our three focus areas there are 1) total cost of ownership, so in the light of the end of the real financial significance of meaningful use, even mps [ph] and macro are not that significant. We need to drive cash financial value. Right now we are focused on cost there, and then with a small side order of quality on the cost quality-based payment.On the cost side, we've taken about 20% of the tax that goes into clients' inboxes out and we are still finding more and more that we can take out profitably, generating many fewer tasks for customers to do for the same cost that they pay. This finds its way into reducing attrition in the first place and I think improving proposals and reputation and cash-based desire to switch in the second.The second thing was clinical integration; this is related to the platform work.

You may remember back when we announced AthenaCoordinator, maybe three years ago, we knew what we wanted to do. A bunch of healthcare guys who did a side order of tech, went out and sold a ton of it and couldn't make it work that well. A year later we got Prakash Khot and two years later we are starting to roll out a series of modern micro services that allow us to disassemble the very monolithic medical records in AthenaNet and in the systems around us. So that work is coming along nicely.

At HIMSS we announced Epocrates Connect, which is a mobile app that allows you to operate both Athena and other medical records, so you could toggle between inpatient and outpatient, giving your physicians a seamless experience. We are moving our clients onto a single national data lake, which will allow us to integrate inpatient and outpatient data for analytics purposes, and ultimately hopefully sometime this year we'll sneak the beginning of a patient-centered national data vault, which will allow us to operationally host a complete medical record regardless of where patient encounters happen on AthenaNet or elsewhere in the country.In terms of market share, we have not done much. We are good at getting our clients' patients back when it's time for them to come back but new work needs to be done to get a net new market share for our clients. I believe I mentioned when we were talking about the cost guarantee a couple of calls ago that someday I wanted to have a market-share guarantee.

We are doing work to position ourselves, there's a national open table like a calendar that's just been tested in production and several other services, but those are the three areas, and this will be my last long answer. I assume many of you have these questions. Those are three areas of the product that we think will change our sales trajectory as they come out. And they're all tracking, and in the meantime, on the execution-front side, we're closing a high rate of business.

In our last call, we said that we're closing a higher rate of deals than ever before and this quarter was higher than that quarter. So when they come out to buy, they do buy with us.

Operator

And our next question comes from the line of Charles Rhyee with Cowen. Your line is open.

Charles Rhyee -- Cowen & Company -- Analyst

Jonathan, you just spoke on that last comment you said. When you're saying closing at a higher rate of deals, are you seeing that really what we're seeing in terms of the booking performance then really is more a function of the market itself? And you talked earlier about wanting to wait to greater maturity for some of your product before bringing to market. What kind of impact has that had? It kind of implies that you might have brought products a little bit earlier to market that maybe you want to now. Does that hurt you in terms of selling where clients said, "Hey, maybe this is not quite ready for us to sign on for"? Thanks.

Jonathan Bush -- Chief Executive Officer, President, and Director

So the second one, we did bring at least two products that I can think of too far into market, too early in their life cycles, Coordinator and Inpatient. I feel very good about Inpatient as a service for the kind of under-100 average daily census in the double-digit service, and when we get people on that they rate it well and we have a high rating in class. I think we had aspirations of pushing it further up-market sooner, and we could have technically accomplished that. I think it would have been at our long-term peril.

Coordinator was the same thing. Both of these will scale better on the newer technologies. And yes on the first question, we execute, we have a lower rate of leads coming into the markets, although it is recovering, it is still net lower if you look at this year versus last and the year before. It's recovering but it's lower and we close a higher percentage of them when they show up.

Operator

Our next question comes from Sean Dodge with Jefferies. Your line is open.

Sean Dodge -- Jefferies -- Analyst

Maybe asking the two previous questions a slightly different way, on sales and marketing.

Jonathan Bush -- Chief Executive Officer, President, and Director

[Inaudible] the lengthy first answer, we'd be done and we'd be at home at 8:15.

Sean Dodge -- Jefferies -- Analyst

So on sales and marketing, given the bookings results, do you think the cuts to the spending you made there in the fourth quarter were maybe a little too drastic and there -- are there parts of that budget or function you need to build back up some to get bookings back online?

Marc Levine -- Chief Financial Officer

Sean, this is Marc. So, I think the answer is that the total sales and marketing spend, where we are at today feels about right as a percentage of revenue. What we do see is that within sales cuts that we did last year, we probably went more aggressive in some specific actions for some subsegments of the go-to-market activity than we would have been with better foresight. And therefore we do think that we gotta do some work to fix some of those particular areas.

That doesn't mean, and we are already starting to do that. It doesn't mean that the total sales and marketing spend envelope has to go back up. It just means we have to address some of the areas where we probably did some things that hampered the sales team and it just takes some time for the sales team to rebuild the connections with, be it with partners, be it with customers in the marketplace, and learn how to operate in the new go-to-market model.

Operator

Our next question comes from Michael Cherny with Bank of America Merrill Lynch. Your line is open.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. I'll leave some of the other bookings questions for further in the call. Thinking again about using your sales and marketing comments, Marc, as a jumping-off point relative to the margin expansion for the quarter. As you think about the cost cuts and the cost rationalizations you made over the last year or year plus, how far along do you think you are in terms of the short-term modernization and just getting the cost cuts right, versus some of the other opportunities you have, I would say, longer term in terms of maybe improving business or continuing the path on optimization on the product side, that's more a natural extension of business growth to drive further margin expansion?

Marc Levine -- Chief Financial Officer

As far as the cost cutting when you think about it in the context of the activity we announced last October, quite frankly, we're almost at the end of that process. We've executed a lot of the work necessary to get both the non-headcount-related actions done as well as the headcount and both have gone pretty much on plan in terms of the timing and the overall impact to the P&L. We did talk about the fact that we want to, and we intend to, reinvest some of the savings that we've achieved into product development because we think that's the right answer for long-term growth, and Jonathan touched on that a little bit earlier. So we're going to continue to work on that.

We were a little slower in ramping up the reinvestment in R&D than we had originally thought for the first quarter.So we've got a little bit of catch-up to do there. A lot of that is just driven by the fact that it's a tight labor market for technical skill sets and it just takes time to get the people on board. In terms of the longer-term opportunities, I think you touched on it correctly and that is, I think within the mix of products and services that we sell within the efforts to automate some of the service work that we do, the document services we talked about back in February. Those are opportunities to continue to expand margin both through mix and efficiency in how we deliver the services.

And those are things we have to continue to drive on a regular basis long into the future to provide a competitive value often to our customers.

Operator

Our next question comes from Jeffrey Garro with William Blair and Company. Your line is open.

Jeffrey Garro -- William Blair & Company -- Analyst

Wanted to ask about the guidance reiteration. You beat on revenue and profits in the quarter but reiterated the guidance. It sounds like maybe there's a more favorable bias on upside to profits than revenue going forward but want to get your thoughts on how we should think about the changes in the timing of the performance and potential outperformance for the remainder of the year.

Marc Levine -- Chief Financial Officer

We obviously as you said, we reiterated the guidance, I'm not changing the guidance range at the top line or the bottom line. The top line for Q1 came in pretty much in line with our expectations and the bottom line certainly came in a little hot. As I just described, some of the bottom line's over-performance was a result of good execution on the spending side but some of it was also the fact that we are a little bit trailing behind on some of the reinvestment work that we intend to do. So you would expect that that will have an impact going forward for the rest of the year as we continue to build up to the plan the R&D capacity.

Not at a point where I want to change the guidance. I mean, obviously, the Q1 strong profit performance puts us in a nice position and makes me very comfortable that the guidance is a reasonable approximation for where we're going to end up at the end of the year but one quarter for me is just not a trend and I want to make sure that we're able to produce quarter after quarter of nice steady return and deliver what we said we're going to do, and then we'll look at whether or not we want to tighten up that range.

Operator

And our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.

Ricky Goldwasser -- Morgan Stanley -- Analyst

My question is on vertical integration and there are two parts to it. Jonathan, when you step back and you think about the broader implications as the deals are approved in your business, are there any areas that you think that you should focus more on in terms of investments for a bit longer term? And the second part of it is, how do your customers think about it. Do you think it's having already an impact on decision-making timeline, and the customers or prospects are having any conversation with you on what that could mean to them?

Jonathan Bush -- Chief Executive Officer, President, and Director

When you talk about vertical integrations, you're referring to like the CVS kind of thing?

Ricky Goldwasser -- Morgan Stanley -- Analyst

CVS, Aetna, and that whole idea of kind of like creating a healthcare hub and a new healthcare marketplace.

Jonathan Bush -- Chief Executive Officer, President, and Director

So all of the major moves, whether it's new entrants by Apple or Amazon or big mergers or all the local hospital mergers, less so in the third instance, depend for their success on their ability to coordinate more or completely to care of more patient. So the idea that a patient would be born, grow old, get sick, have babies, die all on one computer system of the enterprise-software, nature is an obsolete notion at these more national systems, Teladoc, I would include in that category, and others take hold. So the ability to have a national patient-centric medical record that tracks patients wherever they go enables these businesses. These businesses are still sending tens of thousands of nurses to get chart data or sending faxes back and forth.

The ability to be integrated into all the hospitals in the country, all the labs in the country to present, whether it's a pharmacy, clinical staffer, pharmacy-based staffer, or a virtual physician, or an emergency room doc, with a complete picture of a patient regardless of where they've gotten their care is a power position that no one has right now in the country, no one. We believe we will attain that position; it should be extremely attractive to anybody who's interested in a true longitudinal picture of patients especially people whose business depends on it. So we hope that these market motions will make more significant the stuff we're building around patient-centric medical records.

Operator

Your next question comes from the line of Eric Percher from Nephron Research. Your line is open.

Eric Percher -- Barclays -- Analyst

I'd like to get a little more perspective on bookings and maybe in particular expectations. I know you don't have bookings guidance out for the year but I would be interested -- this is our first view of quarterly bookings. When you look back at last year, how different does the quarterly pace look relative to prior years and if you can, I'd love to hear your thoughts on how bookings may pace this year knowing you don't have guidance. If not, what can you tell us about maybe Q2 or Q3, Q4, like you did Q1 -- things that are in last year that we may look for as we model this year?

Marc Levine -- Chief Financial Officer

So, as you said, we didn't offer any guidance on the bookings. We did provide visibility to the quarterly bookings for 2017. The bookings seasonality when you look at it in 2017, it is actually probably a little bit different than our historic seasonality averages. We typically see Q4 strongest quarter for us in the year followed by Q2.

And then Q3 and Q1 tend to be a little lighter for us, and that's the typical seasonality. I can get into your part of what you're asking in the other part of the question. We do see is that with the relatively low volume on a quarterly basis of bookings, we are subject to some lumpiness in comparisons on a year-over-year basis. And this is particularly true in the enterprise segment as we sell into that.

So as large deals happen in the enterprise segment in a given quarter, I mean, the comparison can be a tough one and Q1 is actually a good example for us because if you look at last year Q1, we did book a couple of very large multimillion-dollar deals in Q1 of last year at the enterprise segment. And while we booked large deals again this quarter, nothing of the same size and magnitude as what we saw last quarter.So, in the enterprise space, we're going to see the impact of that lumpiness on a comparative basis year over year. And that's going to be true until we get to a regular level of volume that smoothes those things out. So I would expect that the historical seasonality this year is going to mirror what we've seen in the past.

So we should see stronger relative seasonal numbers in Q4 or Q2 and Q1 will be one of the lighter quarters, as will Q3.

Jonathan Bush -- Chief Executive Officer, President, and Director

It's also worth noting that that big Q1 in 2017 was related to big deals that rolled out of Q4 of '16, and when you have that, you have a surprisingly big Q1 and then the compare is going to be bad if you do a good job under Q4.

Operator

And our next question is from Jamie Stockton from Wells Fargo. Your line is open.

Jamie Stockton -- Wells Fargo Securities -- Analyst

I guess maybe if we could dive into the provider numbers that you guys are giving for a second. The commentary about bookings has been pretty soft for a few quarters here but at the same time, we've seen very strong provider numbers. I understand there's a lag when bookings translate into providers, but any color you can give us on -- are there different types of providers that are rolling into the numbers and maybe causing the absolute provider ad numbers to be pretty strong even though bookings have not necessarily been as strong? And maybe also it seems like claims per provider per day are down. Is there any kind of mix that's going on within the provider numbers that would be driving that?

Marc Levine -- Chief Financial Officer

Let me -- I'll start and Jonathan can add any color on this. What we see, as you pointed out, we had good provider numbers in terms of growth. We didn't see anything significantly different in the mix of where the provider growth came from this quarter versus prior quarters. A similar mix of large accounts expanding the provider base and small independent medical groups added to provider base.

There wasn't one big contributor to the provider mix this time that was significantly different than mix we've seen in prior quarters. In terms of the productivity of the provider base, I think as the larger business, larger deals have been coming in over the past year and longer, it's fair to say that I think we see a slightly lower productivity visits per provider in that larger-enterprise space than in the independent medical group space. We've seen a little less in collections per that base of that provider base and that's shown up as we brought on more enterprise provider groups.

Jonathan Bush -- Chief Executive Officer, President, and Director

That's right. I wish I knew the mix of the add. Oh, yeah, heavily added in the enterprise segment so that would suggest ... in healthcare we accomplished several miracles.

We save lives, we regularly accomplish dis-economies of scale, as we merge and integrate, we do worse. And its miracle but it's our miracle. The other thing that's worth noting, I don't know if it looks like a disconnect between provider ads and bookings, is that this lighter season is allowing us to sharpen our blades. We're doing significant reviews of the way we assign customer success managers, the way we implement new-client on-boarding.

We're getting much more instrumented; we are working very hard on the number of days associated with ramping up someone's collections to full volume after they go live. And we're expecting these things to make more value come out of a dollar of booking but also make the reputation and sales success for the company better as well.

Operator

Our next question comes from David Larsen from Leerink Partners. Your line is open.

David Larsen -- Leerink Partners -- Analyst

Can you please talk a bit about the Inpatient solution, like is there any update on your efforts with WebOMR and also your partnership with Toledo? And then are there any sort of additional capabilities that you want to build into the Inpatient solution on the critical access side, critical access hospital side in terms of like clinical modules in [Inaudible] seizure or anything like that? Thanks.

Jonathan Bush -- Chief Executive Officer, President, and Director

We are grateful for the partnership that we got through the acquisition of the WebOMR IP. We have graduated from the use of WebOMR and Razor Insights. So we now have a fully fledged Inpatient team that is fully ensconced in the 100 clients that we have and bringing them live at a regular pace. We had four go live just in the quarter, or last month.

We have really strong and improving engagement in NPS from those customers. There are some network utilities in the platform that I'd like to see go into place in order to allow us to speed the addition and construction of new specialty modules and so until then we're focused on the smaller hospitals where the modules that we've got are enough. Instead, we're deepening the services, making them more complete. We are now fully including coding with all of our Athena 1 for Inpatient clients.

Those kinds of deepening and sharpening of the blades are more important to us in this season of slower growth and replatforming than in grabbing what we can grab. And as such, we have a great partnership with Toledo and we are helping them stay on the systems they are on until we feel like the ones we are on are a net big boost to them. And we'll keep doing that in a way that fiduciary for both of us in this year.

Operator

And our next question is from Richard Close with Canaccord Genuity. Your line is open.

Richard Close -- Canaccord Genuity -- Analyst

On the new products and services, I wonder if you guys could help us out there. You mentioned, Jonathan, I think an effort to drive retention with clients. Can you talk a little bit about the new service and products, do they drive incremental wallet share with your clients, are you getting a higher percentage of collections for these new services?

Jonathan Bush -- Chief Executive Officer, President, and Director

Well, some of them are services you know about. So Inpatient is a new service and Pop Health is a relatively new service, but Epocrates Connect is a new service, there's no bookings assigned. In fact, we intend to just give it away on the Athena side, and then if non-Athena customers want to subscribe, we're not going to assign bookings on that, we're just going to treat them like beta customers. There are other products that are in development around an untethered calendar asset and other marketing services.

There are products around our data lake and analytics in development, but these are things that we want to play around with and get hardened and into production, before we assign them as quota.

Operator

Our next question is from Donald Hooker with KeyBanc. Your line is open.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Great, good morning. Was curious if you could maybe elaborate on your comment that you're seemingly purposely slowing your going live in hospitals or small hospitals, I guess as part of, you want to get it right and I understand that, even though eight hospitals is still a pretty big growth but what does that mean? Are you screening hospitals in a new way? Maybe could you just talk about how you screen prospective clients there?

Marc Levine -- Chief Financial Officer

So, just to clarify, we're not slowing the go-live. I mean, what we'd like is that the go-live activity when we sell a hospital, any customer when we sell, we want to make sure that we go live as quickly as possible. That's good for the customer, it's good for us. I think what you're referring to is the fact that we stated that we intend to be making sure that we're targeting hospitals to sell that really match the capabilities for the product as opposed to going in and selling upscale larger hospitals when we are not ready to be successful.

Last thing we need is to go to a hospital and sell them a product and have them dissatisfied with the service. So that's what we were referring to as opposed to slowing go-live.

Jonathan Bush -- Chief Executive Officer, President, and Director

I think that's it, we are not slowing, we're-in fact, just as you said, we are screening who we will sell to much more closely, but the result is we should be taking them live much more quickly, with much more powerful financial benefit to both sides of the relationship and then we will move up more cautiously. There's plenty to sell in this low end, low-size end of the market and our goal is to go after them and master this stuff and master some of the network effects that come from shared utilities between inpatient and outpatient, and then the moving up-market will be just a lot easier and that the long-term greedy plan will accommodate a lot more greed.

Operator

And our next question is from George Hill with RBC. Your line is open.

George Hill -- RBC Capital Markets -- Analyst

Jonathan and Marc, on the churn side, can you talk about what is driving churn from your end? Or what is the No. 1 reason why customers leave you guys? And as it relates to the promotional environment at the low end of the market, are you seeing the promotional environment have a negative impact on pricing and on client churn?

Marc Levine -- Chief Financial Officer

So as far as the churn goes, I think we'd talked about this in February. What we found is that the No. 1 driver of churn in the network tends to be consolidation. We've seen as groups get consolidated up into bigger networks, if the bigger network is on a competitive product, the decision might be to go onto one platform, and that has tended to be the biggest driver of churn.

As I said in the prepared remarks, the level of churn that we saw in Q1 is actually pretty stable and it came in line with what we'd have expected. So there are a lot of good indicators that show that the fundamentals that we talked about at the Investor Day are still moving in the right direction, and so we are comfortable where we started for churn.In terms of promotion, no, I wouldn't say that we're seeing activity that's forcing us to change our pricing approach in the market. There's certainly a competitive environment that is always out there and we want to make sure that we are competitive in terms of the value of our offering, but we're not seeing a change in the contract rates, a significant change in the contract rates that would be impacting revenue right now.

Jonathan Bush -- Chief Executive Officer, President, and Director

As you know, that the total cost of ownership was a big focus of ours and we do still have the, I guess it's a year now, a deal desk where you're not allowed to put out a proposal with a negative cost trajectory, that your baseline cost of being in business has to go down. And there have been instances where that deal desk will without consequence to the sales executive change the list price, but, as Marc said, the total impact on what we're fetching with customers doesn't appear to be much. And it's less and less essential as we get more and more of the clients' cost onto our side of the ledger.

Operator

And our next question comes from the line of David Grossman with Stifel Financial. Your line is open.

David Grossman -- Stifel Financial -- Analyst

I know you don't give quarterly guidance, however, can you at least give us some idea of the cadence of reinvestments or other expenses like bonuses that at least may help us understand how the timing of certain expenses independent of revenue growth may impact the margins over the remainder of the year?

Marc Levine -- Chief Financial Officer

What you should think about is, there are a number of variable comp-related expenses throughout the year, sales commissions is one obvious one. Clearly, with the bookings performance that we saw in Q1, we had sales expense, the sale commission expenses that were less than what we would have planned for. As that improves throughout the year and the sales team shows better bookings performance, you'll see more commission-related expenses go up throughout the year. From an overall company performance bonus, we book that as the year progresses in terms of how we're doing against our company scorecard, and you shouldn't see a dramatic change quarter to quarter in expenses related to how that flows.

It's really based on the company performance in the quarter and how we think we're tracking to the end of the year.So those are the variable comp-types of expenses. I don't think there's anything significant from a seasonal perspective. You will see, just because of the seasonality of bookings that I described earlier, if bookings are strong in the fourth quarter, variable comp on commission, selling, you'll see higher expenses in the fourth quarter. So those types of things, and in terms of the second piece of your question, in terms of reinvestment, as I said, we planned when we started the year to reinvest some of the savings that we had in technology development, R&D, and that is still the plan.

We think that's the right thing. We think the choices we're making are right for customers and for the product for the future and will help long-term growth.As I said, we were a little slow, we did ramp up, you can see the R&D line showed some increase on a year-over-year basis, we did see some ramp up in the hiring but we're probably a little bit behind where we wanted to be just because it's taking a little longer to get some of the talent in the door -- just a competitive market. So, that will continue to ramp throughout the year. We're not really giving any kind of guidance in terms of what you're going to see in any given quarter.

We're just going to grow that line as the year progresses. And we'll fit within the guidance for the P&L that we said we're going to fit within.

Operator

Our next question comes from Nina Deka with Piper Jaffray. Your line is open.

Nina Deka -- Piper Jaffray -- Analyst

Epocrates had particularly a strong booking for Q4 '17, and Q1 tapered off a bit but still stronger than historic bookings. Can you explain what drove the increase in Q4 and/or anything in Q1 for the one or two large accounts or strengthen Epocrates Connect? And then what's the typical lag on revenue conversion with that segment?

Jonathan Bush -- Chief Executive Officer, President, and Director

Epocrates is crushing it. About a year ago, maybe year and a half ago, picked up the entire tech stack, moved it to our Chennai team, and launched a new team in Austin to build a completely new set of services underneath Epocrates, brought some modern post-PalmPilot technology as well as the testing and the feeding of the content that that allows, and these guys, we just got our NPS, most recent NPS was 71. We bought it, it had once had a high of 70 when the founders owned it. We owned in the 60s, down as low as 61, these guys just this past week got it to 71.

Docs on the app are increasing and the appetite to see the content is increasing. The ability for us to manage content, serve it up in a modern way for our advertising customers is improving and the energy is just electric. I can't tell you how proud we are after such a long road. The life cycle between contract and live due to the legal constraints in the pharmaceutical industry, if it's a pharma customer -- and most of our customers are pharma customers, most of our content is pharma-related -- is as long as six months.

It's as long as six hours for us to execute it, but when you go through the pharma authorization of each pixel of the content, it can be as much as six months.

Operator

And our next question comes from Matthew Gillmor with Robert Baird. Your line is open.

Matthew Gillmor -- Robert W. Baird & Company -- Analyst

I wanted to ask you about the leadership team. Can you just update on where you stand with the search process for the president, and then with Kyle's departure how are approaching backfilling that role?

Jonathan Bush -- Chief Executive Officer, President, and Director

We're not going to backfill Kyle's role. Jonathan Porter is our chief product officer. We feel like it's going to be cleaner for us, easier for us, to have a single nexus for product strategy. The team is extremely engaged.

Kyle did have two operating units reporting to him. We've consolidated that into one, which will report to me. So our senior VP of operations, Matt Levesque, a decades-long Athena veteran, whom I adore, I'll finally get a chance to manage for a while. So my net team goes up by zero, so I've the same size team, but we have a flatter organization.

Matt's team actually created the long pole in our org chart tent, so we're taking the bottom layer of our layers as a company out. And the president search is going well. Things are stabilizing here, and we're seeing the president search in a different light, one that's still additive but additive from a position of strength. The candidates range from pure text-type [ph] folks, who would bump into our plastic [Inaudible] trade-off against our product management folks or GM types that know healthcare, who would essentially sit atop our provider-facing teams and provide a consolidated escalation point.

We really like a few of our candidates and are progressing well.

Operator

Our next question comes from Stephanie [inaudible] with Citigroup. Your line is open.

Stephanie -- Citi -- Analyst

Hey, Marc, hey, Jonathan, thanks for taking my question. Wish Kyle good luck in his new role for me. So revisiting the R&D discussion from earlier, could you give us an update on the last two quarters developer attrition, and how we should think about this metric going forward? And following up on that one, could you just share any new-hire stats or retention improvements that you're seeing in the quarter?

Jonathan Bush -- Chief Executive Officer, President, and Director

After surgery, recovery is a big deal, even if the surgery is life-saving and Athena certainly inflicted surgery upon itself in the fourth quarter of last year. So attrition and cultural confidence, engagement, belief that there's not some other shoe lurking to drop, these are the kinds of things that are the prime focus for me and my team right now. Recruiting team is new and awesome but the recruiting job is massive and the confidence of the candidates and of our employee base is low, because they're wondering what all this noise in the news about us was last year. So that is critical to get over, and we believe we'll get over it.

We don't have any other shoes that we need to drop and the environment is great. The hiring environment is tough, and then to have that cloud over your head as a company makes it tougher still. The second-order driver of challenge here is that we are doing a fair amount of replatforming. Sometimes with the replatforming creates a have/have not, known/known not, elite/amateur line.

It's a false line, we need to do a better job of making that clear. The protocol that we built up starting in 1997 built an unprecedented technology and business and health-giving asset and the folks who built it should be extremely proud, even if we now need to retire some of it in small pieces over time. We need to keep reassuring people of that, we need to figure out a way to mix new tech and old tech into each scrum team so that there's a balanced portfolio. We're doing the best we can at communicating that.

You can imagine it's not an easy message and we do lose some folks out of the original gangster cohort that we wish we didn't. We are getting great new people in and hopefully, we'll keep the rest but those two waves, or those two forces, are the two biggest challenges to the company right now, bar none.

Dana Quattrochi -- Executive Director of Investor Relations

We're going to take one more question and then we need to wrap it up.

Operator

Certainly, our last question will come from the line of Sandy Draper with SunTrust. Your line is open.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Actually, my question was just asked about the replacement of Kyle and the update on the president. So, I will drop off.

Operator

And our last question will come from Gene Mannheimer with Dougherty and Company. Your line is open.

Gene Mannheimer -- Dougherty & Company -- Analyst

Thanks for squeezing me in. Appreciate it. My question just relates, in light of all comments on the call and the market dynamics that have been played out here over the last several quarters, what's your view of the new normal for long-term growth? It used to be 30% in the good old days, then 20%, is it now 10%? And related, with respect to the sales organization, have you right-sized it, not just in terms of headcount but the alignment of territories, quotas, and how reps are compensated?

Marc Levine -- Chief Financial Officer

We're not getting any signal in terms of long-term guidance on the top line. As we've talked about, we think there's a lot of opportunity for us to impact this marketplace, and we've talked about some of the product areas where we believe we can do it, we've talked about some of the services that we can provide, and we feel strongly that both of those will have an impact on helping the company grow and take a disproportionate share of the market going forward in the future. We have work to do to make sure that that happens. We have quality of services that we have to continue to develop.

We have products and technology that we have to continue to work on and roll out. We've talked about the platform capabilities, all of that we think is real opportunity for the future of the company, and so we feel good about that, without providing any specific guidance as to what we think a growth rate will be.In terms of the sales, the portion of your question, I guess what I would say is, as I said earlier on the call, we are working on looking at identifying the areas where we feel like some of the changes made in the sales reductions at the end of last year where we might have taken actions that caused more disruption than was necessary and we're trying to put more resources in to cover the market better and make sure that we get more at-bats. As Jonathan said, if our win rates continue to be good, which they are, then it's a question of getting more at-bats and making sure we're there in a competitive situation when it happens. So that's part of what we have to do is make sure that the coverage is in place and we're looking to make sure that that's happening.

Operator

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Mr. Jonathan Bush, CEO, for any closing remarks.

Jonathan Bush -- Chief Executive Officer, President, and Director

It was about six years in to the Athena journey where we went to an island to have our retreat and concluded for a number of reasons after losing a superstar -- or maybe deciding we want to get rid of a superstar, something -- that the most valuable asset we had and would ever have was our culture. This idea that we were part of something that was bigger than ourselves and worth doing in to the wee hours even on days when it felt like it might not work. That remains true. Our culture is our most valuable asset, and when one puts any corpus through a shock there is a period of recovery.

And we have put cultural corpus through a tremendous shock, and it is in recovery. Almost losing it or wondering whether we might lose it has caused us to love it more dearly and to be more committed to it than ever, but we must tend to our wounds and sharpen our blades and hold one of those hands as if this is a human endeavor as well as a business again in order to deliver for our shareholders, and we will. And one of the reasons for that is that we do believe this internet thing is going to be big, even in healthcare. It's going to be big because one can deliver complicated activities at a vastly lower cost than one can deliver it with stand-alone software and isolated teams that do not have network effect and providers of medicine United States will desperately and increasingly need ways of reducing their cost without compromising care.

It is also going to be big because the internet is a network and it enables network effect. We are unique in our position to be able to provide nationwide network effect around patients in the practice of medicine. These have always been our dreams and they are little by little becoming our reality after an eight-year wander into federal mandates. We believe in these things deeply and we will do them the right way.

And I think we will win.Thank you, guys.

Operator

[Operator signoff]

Duration: 67 minutes

Call Participants:

Dana Quattrochi -- Executive Director of Investor Relations

Marc Levine -- Chief Financial Officer

Mohan Naidu -- Oppenheimer & Company -- Analyst

Jonathan Bush -- Chief Executive Officer, President, and Director

Charles Rhyee -- Cowen & Company -- Analyst

Sean Dodge -- Jefferies -- Analyst

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Jeffrey Garro -- William Blair & Company -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

Eric Percher -- Barclays -- Analyst

Jamie Stockton -- Wells Fargo Securities -- Analyst

David Larsen -- Leerink Partners -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

George Hill -- RBC Capital Markets -- Analyst

David Grossman -- Stifel Financial -- Analyst

Nina Deka -- Piper Jaffray -- Analyst

Matthew Gillmor -- Robert W. Baird & Company -- Analyst

Stephanie -- Citi -- Analyst

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Gene Mannheimer -- Dougherty & Company -- Analyst

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